The GOP Debate: Squabbles Over Refundable Credits, Deductions, and Conservatisim

Last night’s GOP presidential debates (here’s a transcript of the main event) highlighted some important tax policy contrasts among the candidates. One thought refundable credits are conservative economic policy while another did not. Nearly all would preserve deductions for mortgage interest and charitable gifts but one would ditch them. One worried about what his rivals’ enormous tax cuts would mean for the budget deficit while most others were unwilling to confront the fiscal consequences of their ideas.

Here were some of the highlights:

Mortgage interest and charitable giving. They say to be a successful surgeon you need to be utterly confident and willing to take risks. Well, Ben Carson did what no other GOP candidate would: Promise to ditch those two popular and sacrosanct deductions. If you are an anti-government conservative, you might be able to make a case for keeping the charitable deduction. After all, in your worldview, non-profits would do much of what government does today. But how do you justify keeping the mortgage deduction, especially when you’d dump nearly all others? Oh yeah, the real estate lobby. But, as Carson said, people owned houses and gave to charity before the income tax, and they still would.

Refundable credits: Senators Marco Rubio and Rand Paul got into it over Rubio’s plan to expand the Child Tax Credit (CTC). Paul asked how Rubio could claim to be a conservative after proposing “a trillion dollars in transfer payments” to low income families. Rubio has made his concern for families with children a centerpiece of his campaign rhetoric and insisted last night that the credits were offsetting “other taxes” these families pay. Paul might also ask about the credentials of Milton Friedman, the conservative icon who invented the US version of the negative income tax, a precursor to refundable credits such as the CTC and the Earned Income Tax Credit.

Should low-income households pay income taxes at all? The candidates expressed very different views about this related issue. In last night’s undercard debate, Louisiana Governor Bobby Jindal defended his 2 percent minimum tax on all households regardless of income. Everyone, he said, should have some skin in the game no matter how little they make (though Jindal would retain some form of EITC). All other candidates, including Paul, include a large standard deduction or personal exemption to protect low income families from the income tax. Even Carson, who until last night had been touting a “flat” 10 or 15 percent rate, said his plan would include some low income exemption.

In many cases, this design would increase the number of low-income households who pay no income tax, a reversal of Mitt Romney’s rhetoric of three years ago. To further complicate matters, even Paul would retain the child and earned income credits (though the rest of his tax proposal is quite different from Rubio’s).

Tax cuts and deficits: Ohio Governor John Kasich said “we’ve got to be responsible about what we propose on the tax side.” Kasich, Paul, and Cruz claimed to have laid out specific spending cuts to offset the cost of their tax reductions, though it’s hard to know if they add up. Kasich himself, for instance, says he’d get much of his saving from slowing the growth of health care, but doesn’t quite explain how. Most of the other candidates have made little or no effort to specify the spending cuts or revenue raisers they’d need to avoid big increases in the national debt. Rather, they fall back on gauzy rhetoric about closing tax ‘loopholes,” cutting unnamed “entitlements,” and promises of huge increases in economic growth.

Some of last night’s arguments were more rhetorical than real. After all, despite their squabbles over refundable credits, nearly every candidate has at least one. But they did begin to help voters sort out their choices.

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